An Investor’s Guide to India – Part I

December 22, 2014
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This is the first of a three-part series aimed at highlighting a few key points about an emerging economy, filled with talented entrepreneurs, which is primed for your investment capital in 2015.

As you surely know, throughout history the greatest investment returns have been gained when an economy is in its infancy. We know this by looking at the riches amassed by the titans of American industry in the 19th and early 20th century. Take John Jacob Astor’s wealth for example. He was not the wealthiest of his time, but his riches, in today’s dollars, of $121 billion far eclipses that of the wealthiest today. Vanderbilt’s fortune in today’s dollars would be $185 billion, Carnegie‘s over $300 billion, Rockefeller’s was $400 billion.

One would be hard pressed to create wealth of that magnitude in America today given how mature, politicized and regulated its economy has become. However, new greenfields exist around the globe where political structure and literacy rates, along with Western Values, are strong. These emerging countries have the potential for growth similar to that of America 100 years ago.

 

An Emerging Standout

Of all the emerging economies, India is at the top of my list from an investment and personal interest perspective. At the forefront is its culinary diversity that morphs in flavor and texture as you travel different points on the compass. The food in the north is delectably different to what you find in the south, and there are subtle changes between dishes in the east versus that of the west. Each of India’s 28 states has its own unique heritage of recipes and until you take your time, as I have, traveling from one state to the next, it would be hard to describe the extent of the diversity displayed by over one billion people.

The official language is Hindi, a variant of the Hindustani language with deep roots in the ancient Sanskrit language. The country supports 1.2 billion people, growing at 1.5% annually. In comparison, the US has 330 million and grows at 0.7% annually.

One of the main drivers behind India’s growing commercial success is the literacy rates it boasts.

 

Literacy Rates in India

Because of India’s diversity, it is unfair to look at the entire country through the same lens. Each state needs to be seen on its own merits and strengths, just as one would evaluate Texas and New Hampshire differently.

In terms of its Adult Literacy rates, the state of Kerala has the highest at 93%, while the state of Bihar – also one of the poorest – has literacy rates of 64%. With such a wide fluctuation, averaging tells an inaccurate story. For some context, the world literacy rate is hovering around 80%.

Over the last few years, the states with lagging literacy rates have instituted programs to rapidly improve their numbers. Take, for instance, the state of Bihar with its 64% literacy. The recent literacy rate was measured in 2011. Two decades prior, the rate was 39%. The state and federal governments have instituted, and are planning to initiate more, programs to increase the rates over time. They are doing a fine job thus far, and this should come as welcomed news to investors.

Government Structure

India is administered by a Central Government that is established by the Constitution of India. All government institutions are situated in New Delhi, the country’s capital. The country is subjected to the constitution, the Indian Penal Code, Civil Procedure code and the Criminal Procedure Code.  All laws are based on the English Common and Statutory Law. New laws are enacted by Parliament. The Parliament is bicameral, similar to the House of Lords and House of Commons in the United Kingdom. In India there is the Rajya Sabha and the Lok Sabha. The first is the upper house, where some members are appointed by the President, and others are elected by the state and territorial. The second, the Lok Sabha, consists of members elected by the people.

The country is headed by the President who acts on the advice of the Prime Minister. The Prime Minister (Narendra Modi) is the head of government.

 

Business in India

India has a mature banking and financial system already in place, with a strong regulatory framework to facilitate trans-border transactions. The growth of the middle-class, and the attempted exodus from poverty to commerce by tens of millions of Indians, makes for tremendous economic upside potential. When you combine India’s growing literacy rate, which results in a stable supply of labor at low costs, and large number of entrepreneurs per capita, you get a very robust investment climate.

When entrepreneurs have a commercial idea that is made inexpensively, they can also ramp up production rapidly, which is part of the reason India is a leader in various IT sectors. When a country has stable economies of scale, it can then begin international expansion, which is the stage many thriving Indian businesses have now reached. In the high tech market, this is a marketing team’s dream come true, and an ideal time to invest.

Over the following articles in this series (two more to come) I will  highlight specific businesses that have succeeded in moving from the US to India, and why many American companies have this emerging nation at the center of their international strategy.

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AJ is a naturalist and economic realist. His articles are based on his study of world events and common sense, not conventional wisdom. He believes technology allows humanity to get past the deficiencies inherent in civilization's inadequate political methods and deficient economic tools. His observations are sometimes radical, sometimes provocative and sometimes misunderstood. But they are effective in evoking a discourse. Ultimately, that is his intention and desire - to stir the pot in search of solutions to today's political and economical challenges.

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